Are Americans Ready for $7 Gaoline?
A huge shock wave went through the oil community today as Goldman Sachs predicted that oil may hit a super spike over the next 6 to 24 months and climb to between $150 to $200 a barrel. The market reacted by pushing crude futures up to almost $123 dollars.
Let's put this in perspective. First, take a look at crude oil futures for the past year:
As you can see, prices have gone from around $60 to over $120 in less than a year.
A few years ago, Goldman predicted that oil could top $100 and many people discounted that. If prices do in fact hit around $200 a barrel, it would translate to gasoline futures hitting around $6 a gallon which would bring $6.60-$7.20 to consumers. Diesel would even be higher at $7.10-$7.60 a gallon. This cost would be definitely be passed down to consumers at grocery stores.
So, what can be done?
Unfortunately, not a lot. The US is currently trapped with a weak economy, a very weak dollar, numerous international oil production problems, and increasing oil consumption from China and to a lesser extent India. Today's announcement of Indonesia potentially leaving OPEC which could take more oil off the market may further complicate matters. Even if the US decided to greatly increase domestic oil production including drilling in ANWR, it would only have a limited imapct. That is not to say that domestic exploration should not be considered, however it is far from a magic bullet that some people claim.
If the prediction from Goldman comes true, the next President of the United States is going to have a major energy crisis to deal with. When you compound that with two wars (and potentially a third) it will not be a fun time.
Let's put this in perspective. First, take a look at crude oil futures for the past year:
As you can see, prices have gone from around $60 to over $120 in less than a year.
A few years ago, Goldman predicted that oil could top $100 and many people discounted that. If prices do in fact hit around $200 a barrel, it would translate to gasoline futures hitting around $6 a gallon which would bring $6.60-$7.20 to consumers. Diesel would even be higher at $7.10-$7.60 a gallon. This cost would be definitely be passed down to consumers at grocery stores.
So, what can be done?
Unfortunately, not a lot. The US is currently trapped with a weak economy, a very weak dollar, numerous international oil production problems, and increasing oil consumption from China and to a lesser extent India. Today's announcement of Indonesia potentially leaving OPEC which could take more oil off the market may further complicate matters. Even if the US decided to greatly increase domestic oil production including drilling in ANWR, it would only have a limited imapct. That is not to say that domestic exploration should not be considered, however it is far from a magic bullet that some people claim.
If the prediction from Goldman comes true, the next President of the United States is going to have a major energy crisis to deal with. When you compound that with two wars (and potentially a third) it will not be a fun time.